By mid-afternoon, when Wall Street reopened with a strong recovery, the panic had almost evaporated and the London market had recovered all its early losses, only to slip back into the red again after Wall Street paused for breath.
At its worst, the London market was down more than 1,000 points from the all-time high of 6,179 on 20 July. It has not yet fallen by the 20 per cent needed to signal a bear market, and in percentage terms the fall is barely half the drop the market suffered in the Great Crash of October 1987. That setback was wiped out again within months and the FT- SE index ended 1987 higher than it had started the year.
But the correction has been sharper than the similar setback last autumn - a reminder that markets can fall as well as rise; and tracker funds, the darlings of the investment community when prices are rising, offer no protection when prices are falling.
No one knows if the correction will develop into a full-scale bear market and trigger a recession, but financial experts agree that it is too late for the small investor to panic and try to dump investments - in fact the correction could soon make shares look cheap to buy.
Independent financial adviser Amanda Davidson, of Holden Meehan, says investors with stock market exposure should wait for the market fluctuations to iron themselves out. Now is not the time to sell, but rather a time to review investments and perhaps put lump sums on deposit.
It is quite appropriate, moreover, to continue regular savings payments into unit trusts and PEPs, she says, to benefit from the lower prices which are now on offer.
Anne McMeehan of Autif, the unit trust trade body, said investors should be invested for the medium-to-long term, and in the historical context recent events are still only a small blip on the long-term market trend.
Recent events, however, show that some stocks are more risky than others. Most at risk from a financial melt-down in Russia are banks with a high international debt exposure, merchant banks and fund managers, and insurance companies.
Engineering companies such as GEC and Rolls-Royce, which have a high exposure to large orders from international companies, and companies involved in producing minerals, oil and industrial raw materials, will also be affected.
Over the last six weeks, shares have been falling on more general fears of a recession. The biggest losers in percentage terms have been oil exploration and production companies, diversified industrials, mining companies, construction and building materials, paper and packaging, and hotels and leisure - all of which have suffered falls of 20 per cent or more.
Investment trusts and financial stocks, information technology, engineering, vehicles, transport, distribution and household goods, pubs and drinks are seen as medium risk, with falls of 15 to 20 per cent; healthcare, retailing and property are low-to-medium risk.
The best defensive stocks so far have been pharmaceuticals, telecommunications, life assurance and the utilities (gas, electricity and water), which have only lost around 5 per cent of their value at a time when the FT- SE had fallen 13 per cent.
Small companies, by the way, have fallen 14 per cent.
There must now be a questionmark over residential property, especially after Nationwide Building Society reported a drop in house prices last month for the first time in two years. Estate agents said that sellers were now outnumbering buyers.
But cash and bonds still have an appeal in a persistently bear market. Although gilt-edged prices are already at their highest levels in 30 years, a recession would soon bring down interest rates, and could give fixed- interest stocks a boost.
Roddy Kohn, partner at Bristol-based advisers Kohn Cougar, says corrections are in the nature of the stock market. This is a fresh lesson that investors should invest for the long-term and not try to second-guess the market.
He likes guaranteed funds such as General Accident's five-year Portfolio bond which is invested in a mixture of shares, bonds, property and cash, and offers a guaranteed return of capital for investors who last the full term. He also likes HSBC's Capital-secure PEP.
London-based IFA Michael Royde advised investors to sit tight. He said the setback shows the attractions of protected products, such as AIG Life's equity bond which allows investors to lock in gains every three months. Investors with Self-Invested Pension Plans (Sipps) can find better yields investing in good commercial property where rental yields of 10 per cent can still be found.
Another possibility is GE Financial Fund Management's first PEP product, EuroPep I, which goes on sale on Tuesday and is available for up to six weeks. The funds will be invested to track the top 100 European companies (the FT-SE Eurotop index) for five and a half years, and guarantees to return capital to investors who last the course, even if the index falls.
If it rises, investors get a 13 per cent uplift in capital for each 10 per cent rise in the index, up to a maximum of a 75 per cent return on capital, which is reached if the index rises 58 per cent. If the index does reach this ceiling, the return to investors will be 10.7 per cent compound net of tax.
The base date for the calculation will be the average level of the index over the six months from 13 October, which gives investors some protection against short-term falls in the Eurotop index over the next six months. The final level will be averaged over the last six months to the maturity date on 13 April 2004.
Call GE Financial on 0181-380 3388 for details.